I dunno, but when it happened to me, it totally derailed everything. It was one of those moments when you want to argue with the prospect - "As if funded companies don't go out of business?" - but that's probably not a good strategy. :) So I just sat awkwardly and tried to explain that we'd been approached by VCs but hadn't pursued anything.
I hope it doesn't come up that often. I worry, though, that it's actually some sort of signal to the average prospect (who's not in the startup world).
Kevin O'Leary says pioneers get slaughtered and settlers get rich. First to move well on a proven idea - and keep moving on it - may have the advantage. First to act? Not so much.